U.S. Industrial Market Continues to Perform Well with Record Low Vacancies and Record High Asking Rents
Our Q1 2018 U.S. Industrial Market Outlook Report highlights that the U.S. industrial sector continues to perform exceptionally well, with robust net absorption, rent growth, construction and occupancy, all fueled by the continued growth of e-commerce and a solid U.S. economy.
Key takeaways from this report include:
- E-commerce sales grew 16.4% in Q1 2018 compared with the same time last year and now represents 10.5% of total non-auto retail sales. E-commerce will be a driving force in industrial real estate for the foreseeable future.
- The national industrial vacancy rate remained at an all-time low of 5.1% for the second consecutive quarter despite nearly 53 million square feet of new supply completing in the first quarter of 2018.
- Product under construction remained very high at 231 million square feet, the second-greatest quarterly level on record. Despite the large amount of development slated to hit the market in the next year, if net absorption stays at its current level, vacancies would increase 30 basis points (BPS) over its current mark.
- Tightening markets and new, higher-quality Class A industrial space hitting the market, drove up asking rents for warehouse/distribution space to $5.46 per square foot per year in Q1 2018, 5% higher than the same time last year and the highest asking rent on record.
- Essential indicators for industrial real estate, including loaded inbound container volumes and intermodal rail volume, continue to move in a positive direction. U.S. seaports are booming, with nearly all major locations posting year-over-year increases in loaded inbound container volumes. Rail traffic also remains robust as year-to-date volumes are up more than 2% compared with the previous year.
- The Southern U.S. industrial market was the top region of choice for occupier expansion in Q1 2018. Over 46% of the total net absorption in the U.S. occurred in the region, despite having only 31% of the existing warehouse stock. Three of the top five markets for net absorption in the country were in the region (Atlanta, Savannah and Greenville-Spartanburg-Anderson).
- Growth in investor demand for industrial properties continues to surpass all other property types. Nearly $21 billion in industrial assets were purchased in the first quarter of 2018, 11% higher than the same period a year ago, while overall demand for commercial real estate fell. Thanks to two large transactions, portfolio sales increased by a whopping 84% while individual sales grew by 11% compared with the previous year.